Gold set for best year in three as Fed rate cut bets boost appeal

Gold prices were set on Friday for their best year in three on strong bets of U.S. interest rate cuts early next year and as the war in Ukraine and tensions in the Middle East lifted safe-haven demand.

FUNDAMENTALS

* Spot gold was up 0.2% at $2,068.95 per ounce, as of 0233 GMT. It has risen 14% so far in the year, heading for its biggest annual gain since 2020.

* U.S. gold futures fell 0.2% to $2,078.70 per ounce.

* Bets for interest rate cuts from the U.S. Federal Reserve have firmed following cooler inflation data, with traders now pricing in an 88% chance of monetary policy easing in March, according to the CME FedWatch tool.

* Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

* The dollar index fell 0.1% on Friday and was poised for its worst yearly performance in three years, boosting gold’s appeal for other currency holders.
* Yields on 10-year Treasury notes languished near their lowest level since July at 3.8350%.
* Data on Thursday showed China’s net gold imports via Hong Kong rose about 37% in November from the previous month, as the world’s top consumer eased some import restrictions on the metal to meet expected demand for the Chinese New Year.

* Meanwhile, Israeli forces attacked areas of the central and southern Gaza Strip where residents have been expecting a renewed ground offensive in areas crammed with tens of thousands of Palestinians already displaced by the Israeli-Hamas war.

* Spot silver rose 0.2% to $23.83 per ounce, but looked set to the end the year largely flat.

* Platinum was steady at $1,002.50 per ounce, a near six-month high, while palladium rose 0.1% to $1,133.73. Both autocatalytic metals were on track for a yearly decline, with palladium down 37% – its biggest since 2008.

DATA/EVENTS (GMT) 0600 Russia S&P Global Mfg, Svc PMI Dec 0700 UK Nationwide house price Dec 1130 India Forex Reserves w/e Dec 22 1445 US Chicago PMI Dec